S&P: One-in-Three Chance USA Downgraded in Next Two Years

By Dave Kansas

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More from S&P’s USA credit-rating report:

The bottom line: S&P says it sees a 1-in-3 “likelihood that we could lower our long-term rating on the U.S. within two years.” Translation: If politicians plan to kick the can down the road to the 2012 elections, then look for S&P to drop the hammer. That should focus a few minds.

“In 2003-2008, the U.S.’s general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most ‘AAA’ rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover.”

As for handicapping the current debate on how to rein in the deficit/debt? S&P outlines the differing approaches between the Obama Administration and the Republican controlled House, but raises doubts about the two sides coming together.

“We see the path to agreement as challenging because the gap between the parties remains wide. We believe there is significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections.”

In such a scenario, S&P warns, no meaningful debt relief plan would be in place before the end of 2013 – at the earliest.

S&P helpfully adds that it “takes no position on the mix of spending and revenue measures the Congress and the Administration might conclude are appropriate. But for any plan to be credible, we believe that it would need to secure support for a cross-section of leaders in both political parties.”

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